The economic justice of allowing a carload shipper lower rates than one who ships in small lots is apparent, on account of the difference in the cost of such service to the railways. This has been recognized by the Interstate Commerce Commission and the courts as beyond question. Not only the amount of paying freight in relation to dead weight; but the cost of loading and unloading, of billing or collection and of adjusting damages—all of these elements of cost are noticeably less in the case of a full carload. Turning from these considerations of cost to those prescribed by what may be called traffic principles, the difficulty in arriving at a just determination may be easily appreciated. Glass battery jars in less-than-carload lots were at one time charged from New York to Atlanta, Georgia, second-class rates, namely ninety-eight cents per one hundred pounds. The same commodity when in carload shipments (not less than 20,000 pounds) was rated as fifth class; in which case the charge from New York to Atlanta became sixty cents. Here was a plain difference of thirty-eight cents per one hundred pounds—upward of sixty per cent. greater charge—to the small shipper whose business or capital was insufficient to warrant shipments to such an amount. Two results of such discrimination are possible. In the first place, the large shipper is enabled to undersell his smaller competitor and perhaps to drive him out of that class of business. This may take place as between two dealers, both located in the South and buying their supplies from New York. The second result is that under such rates it is impossible for the manufacturer or northern jobber to sell direct from New York to the retailer in the South in competition with the provincial jobber there located, who ships his goods in at the cheap carload rate and distributes them thereafter. The problem thus concerns at the same time both the small local shipper or dealer, as against a more formidable provincial competitor; and also the remote jobbers as a class against the whole group of local middlemen. In the latter case, sometimes, as in the South, the question is still further complicated by a basing point system, under which the provincial jobber re-distributes to the country stores the goods which have already been shipped in on a low carload rate.[360] And, locally, there is also the immanence in the South of water competition by sea and river to be kept in mind. Boat charges are based upon space requirements rather than weight. This introduces further important considerations in fixing the spread of charges.
The problem as it affects the manufacturer is akin to that concerning the jobber. Originally, as a matter of fact, the carload reduction was essentially a manufacturers' rating, especially for goods in which the cost of raw material formed a large part of the price of the finished product. The relations of the carload rate on the former to the less-than-carload rate on the latter, it is obvious, may readily become an important element in industrial success. It is plain enough that carload charges under such circumstances should be substantially less than those upon small consignments; but that is far from affording a satisfactory answer to the question as to the proper spread or difference in charge to be allowed between the two.
Obviously, in any representation as to the reasonableness of the discount which shall be allowed on carloads, either on the basis of cost or of traffic principles, the interests of localities are commercially pitted one against another. The New York or Chicago jobbing house desiring to sell its goods directly to the retailers throughout the West, wishes to have a relatively low rate on such small shipments as the retailers in lesser places alone can afford to purchase. Participation in this distributing business, however, is resented by the middlemen located in western centres—Omaha, Denver, Kansas City, etc.—who all insist that there should be so wide a difference between carload and less-than-carload rates that they may ship in their wholesale purchases at a low rate, and thus compete in their own territory with the manufacturer in the East or the jobber in New York who desires to sell direct.[361] Comparison of the classifications in different parts of the country reveals the influence of these local interests. The railways in Official Classification territory desire, of course, to build up the manufacturing and jobbing cities tributary to them. This can best be done by encouraging the growth of eastern jobbing centres, stimulated by as low rates for retail as for wholesale shipments. The railways in the western and southern territory, on the contrary, are obliged to consider the claims of their constituents, and to correspondingly minimize the advantages which foreign competitors of their local wholesale dealers enjoy. Another consideration must also be kept in view, namely, that carload ratings can only be accorded when business has developed a magnitude sufficient to permit shipments of that size. The growth of the volume of business in general, therefore, might be normally expected to produce an increase in the proportion of carload ratings. Experience, as we have seen, confirms this view. The normal development, then, is toward an increase in the number of lower rates quoted for carload lots. This is retarded only by the influence of the jobbers and manufacturers in the eastern trade centres, who insist that they shall be permitted to compete on even terms with provincial middlemen by making their shipments direct in small lots at rates approximately as low as the local jobbers pay on carload lots. This question is an exceedingly important one, requiring the balance of opposing interests to a nicety.
Not unfamiliar aspects of the problem of carload rating are revealed in a recent case before the Interstate Commerce Commission, concerning milk rates in New England.[362] And yet the normal order is reversed. Usually, complaint is made of the denial of carload ratings. In this instance a plea was entered for a useable small unit rate as against the wholesale charge. The dispute was precipitated by a deadlock in 1910 between the three large Boston milk contractors and the farmers' associations of several states. The producers, failing in their demand for an increased price, declined to furnish milk at the old figure. A famine resulted, which drew the attention of the public sharply to the system under which the Metropolitan district of Boston was supplied. The belief prevailed that the peculiar transportation conditions known as the "leased car system" which had existed for half a century, was mainly responsible for the tight monopoly of the milk supply. Under this arrangement specially low charges were allowed to those who made shipments regularly by the carload. The Massachusetts legislature, after an investigation, finally passed a law providing that no carrier should charge more for the transportation of milk by the can than was charged for larger quantities; and also that the same facilities, icing, for example, should be furnished in the one case as in the other. This settled the intrastate charges; but it left matters as before for all the other New England states contributing to the market. In this form the controversy was brought before the Federal authorities, which exhaustively considered the methods of transportation as affecting all parties concerned. The contrast with the older elastic situation as to milk ratings in New York was sharp in many respects.[363] This earlier controversy had to do mainly with the relative rights of nearby and distant producers. It was a question of the element of distance as affecting a local or territorial monopoly. The Boston case, on the other hand, was rather a matter of carload ratings than of graduation of charges according to the length of the haul. The monopoly in this instance was that of contractors who had succeeded in getting entire control of the business by reason of the wide spread between charges for milk by the can and by the "leased car." Shipments by the can from the independent farmer were rendered practically impossible since they had to be carried in the baggage car and were liable to spoil through lack of refrigeration.
By contrast with the New York "open car system," the New England plan from the standpoint of cost of service alone seemed to offer several advantages. A caretaker, hired by the milk contractor and in constant personal touch with the farmers, exercised supervision both over milk and cans; this insured a heavier loading and more prompt service at terminals; resulted in the operators providing the best facilities for handling the supply; and allowed surplus milk to be directed to other uses without waste. A large investment had been made under this system, dependent upon its continuance for a reasonable return. On the other hand, denial of equally low rates with the same facilities for refrigeration to the single-can shipper, had undoubtedly fostered monopoly. The railways, conforming to the new Massachusetts law above mentioned, offered to furnish and operate a car suitable for independent shippers on condition that six hundred cans should be tendered for shipment. But they denied obligation to furnish icing facilities, which latter, of course, were absolutely necessary for the success of the competitive service. To be sure, the leased car controlled by the contractors had been theoretically open to all, on condition of a small charge for icing; but the farmers contended that independent shippers ought not to be compelled thus to deliver over their property into the hands of competitors, with the accompanying exposure of their business relations. In the light of all these complications the Commission decided that a per can rate with the necessary refrigeration, and bearing a proper relation to the carload rate, ought to be established. And there the matter rests at this time.
The problem of mixed carloads, also, is a difficult one to adjust to the needs of primary and secondary distributing points.[364] It is oftentimes of vital importance to a small jobber to be able to make up a carload of miscellaneous packages. His business may not be large enough to permit him to enjoy the advantage of a carload rate on any single commodity. Or the independent meat packer may be greatly benefited by a rule which permits him to bulk his soap and other by-products with other goods in securing a wholesale rate. Why may a paper manufacturer not combine paper bags and wrapping paper in one territory as well as another? In this regard the rules in the West and South are naturally much less liberal than in the East. The privilege of mixture has been given only to a limited extent to jobbing and manufacturing centres by means of commodity tariffs. Such mixture is usually restricted to analogous articles, such as agricultural implements, furniture or commodities intended to serve a joint purpose. The recent bitter protest against the discontinuance of the right to ship binder twine with agricultural implements is a case in point. On the other hand, eastern railways are a unit in opposing the bulking of separate shipments in carloads when owned by different shippers. The western and southern roads do not specially forbid it. All such differences come to the fore in any attempt to unify the practice of all the carriers of the country under a single set of regulations.
Assuming the reasonableness of a difference in charges between carload and small shipments, where shall the dividing line as to size be drawn? This is the important and perplexing problem of minimum carload rates. Turning to our excerpt from the Western Classification on page [298], it appears that 24,000 pounds of advertising matter, N. O. S. (not otherwise specified), must be shipped at one time in order to warrant a carload rate. Under such circumstances a consignment of 20,000 pounds would be classified first instead of third class—the difference in rate varying according to distance, but in all cases being substantial. Between St. Louis and St. Joseph, Missouri, for example, the charge would be sixty instead of thirty-five cents per hundredweight. Were the minimum weight for carloads but 15,000 pounds, as in the case of harvesters under the Southern Classification, this particular shipment of advertising matter would have enjoyed the full benefit of wholesale charges.[365] From this instance it is apparent that the point at which the minimum carload weight falls, is of great importance in the determination of the actual rate—an importance also dependent, of course, upon the spread between carload and less-than-carload charges. It is also evident that minimum carload ratings may readily be used as a means of advancing charges. If, as appeared in a recent case,[366] the minimum carload for wool in sacks was advanced between 1896 and 1912 from 15,000 to 20,000 pounds, the effect upon the shipper of a consignment of 18,000 pounds, for example, would be as truly an increase of charges as if the freight rates themselves had been actually advanced. For under the new schedule, he would be compelled to pay less-than-carload charges instead of the lower carload rates formerly granted. Moreover, it is apparent that minimum carload weights may enter seriously into commercial competition in a number of ways. If 45,000 pounds of raw cotton by a special round-bale process can be loaded upon a standard car; when but 25,000 pounds of the ordinary square bales could be carried by the same equipment; it is evident that tariffs based upon the higher minimum would especially favor one set of competitors as against another.[367] They might, in fact, be sufficient to turn the scale entirely in favor of the round-bale system throughout the South. Granted, however, that such heavy loading makes for economy in operation, it is clear, nevertheless, that the carload minima must be so established as not to discriminate against the great bulk of shipments of the more common sort. All along the line one meets with such illustrations of the bearing of the minimum carload upon rivalry in business. Large shippers are continually striving for a high minimum. The small shippers oppose it for the same reasons. In a similar way the interest of the manufacturer distributing his goods direct, in competition with middlemen, is vitally affected.[368]
Car capacity, both as regards ability to load and carry economically, is the principal factor in the determination of minimum carload rates. It is largely a question of relative cost of operation.[369] Reference has already been made to the great economy incident to the use of large cars, whereby the paying load becomes less in proportion to the deadweight. This, of course, largely accounts for the steady increase in carload capacity in recent years. But the question is even more complicated. An adjustment must be made between two main groups of freight: first, that which is sufficiently heavy to be readily loaded to the minimum weight in ordinary cars; and, secondly, light and bulky goods of which the common car will contain but a small proportion in bulk of its truck capacity by weight. Fortunately, we may evade the moot point, theoretically, as to whether a carrier is entitled to the same revenue from a given vehicle, whether it be loaded with heavy or light goods; that is to say, whether the rate ought properly to decrease per pound with increase in the density of the lading. This is a technical matter as to cost. But it carries certain implications of considerable importance commercially, as will shortly appear.